CFTC finalizes position limits rule, but Democrats oppose it
The Commodity Futures Trading Commission recently approved three final rules, including one regarding position limits for derivatives, completing the commission’s major rulemakings related to implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
The vote on the position limits rule was 3-2, with Republican commissioners supporting the rule and the Democrats opposing it. The position limits issue has been subject to partisan debate for the 10 years since the Dodd-Frank law was passed.
The rule will be effective 60 days after publication in the Federal Register.
In an opening statement, CFTC Chairman Heath Tarbert went through the long and troubled history of the position limits rule and said “Today, we are removing a cloud that has hung over both the CFTC and the derivatives markets for a decade. Market participants, particularly Americans who need these markets to hedge the risks inherent in their businesses, will finally have regulatory certainty.”
Commissioner Rostin Behnam, a Democratic appointee, said that “bringing something across the finish line doesn’t always equate to a success.”
He added, “I believe that by going against our congressional mandate and clear statutory intent by overly deferring to the exchanges, we have relinquished a claim to victory in this final position limits rule … Therefore, I will go with my gut and not be part of the formation in supporting this final rule.”
The three other commissioners also released statements on their views on the rule.
Senate Agriculture Committee Chairman Pat Roberts, R-Kan., praised the rule, saying, “I appreciate the CFTC’s careful review and consideration of stakeholders’ input, particularly from our nation’s agricultural end-users, when crafting this final rule.”
“This rule contains a clear definition of what practices constitute a bona fide hedge and therefore are not subject to position limits. This is critical to ensure all commercial end-users have the ability to effectively hedge commercial risk.”
Roberts explained, “The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandates the CFTC, as it finds necessary, establishes limits on speculative positions not considered bona fide hedges. Since 2011, multiple iterations of the rule have either been vacated by a federal court or never finalized.
“Today’s rule clarifies and broadens the list of enumerated hedges; establishes position limits in the spot month for 25 physically settled core reference future contracts, cash settled futures, options on futures and economically equivalent swaps; and provides end-users flexibility in seeking approval for non-enumerated hedging exemptions.”
Senate Agriculture Committee ranking member Debbie Stabenow, D-Mich., said the rule “fails to go far enough to protect consumers and producers from irresponsible commodity trading that has caused unnecessary spikes in prices for consumers.”
“When Wall Street traders make reckless decisions, consumers end up footing the bill. In Dodd Frank, Congress clearly directed the CFTC to set reasonable limits that ensure speculators do not raise prices for consumers. This final rule ignores Congressional intent and fails to protect our markets.”
The American Cotton Shippers Association praised Tarbert for his leadership and the final rule.
“The strong leadership of CFTC Chairman Heath Tarbert brought this process to fruition after more than 10 years of gridlock,” ACSA President and CEO Buddy Allen said.
“This rule’s finalization increases certainty for true commercial hedging, which makes risk management throughout the supply chain more efficient. This allows for better pricing to producers and end customers.” ❖